Tokyo inflation accelerated more than expected this month as other data showed the economy moving broadly in line with Bank of Japan (BOJ) projections, feeding speculation over a possible rate hike next month and bumping the yen.
Consumer prices excluding fresh food in the capital climbed 2.2 percent from a year earlier this month, picking up from 1.8 percent largely on a winding down of energy subsidies, according to the Japanese Ministry of Internal Affairs and Communications yesterday.
Overall inflation rose to 2.6 percent, as food prices also pushed up the gauge, outpacing economists’ expectations.
Photo: Bloomberg
The yen strengthened after the report from 151.34 against the US dollar to as much as 150.01, as the outcome offered support for the view that the BOJ might hike rates again next month. Overnight swaps suggest a 63 percent chance of the BOJ moving at its next meeting.
Market expectations for the move have roughly doubled this month as BOJ Governor Kazuo Ueda has repeatedly said borrowing costs would be raised if the economy performs in line with the central bank’s view.
Separate reports yesterday showed the job market remained relatively tight, with the jobs-to-applicants ratio ticking up to 1.25 last month, and the jobless rate rising slightly to 2.5 percent.
“Overall, none of the economic data today stops the BOJ from mulling a rate hike,” said Taro Saito, head of economic research at NLI Research Institute. “If financial markets are calm, they could move in December.”
Yesterday’s Tokyo consumer price index (CPI) data is the last government inflation report before the central bank makes a decision on its benchmark rate on Dec. 19. Last week Ueda said it is not possible to predict the outcome of the meeting, hinting that the next meeting would involve a discussion over whether to raise interest rates.
The fall in energy subsidies stems from a previous decision by former Japanese prime minister Fumio Kishida to phase out what was supposed to be a temporary measure. Kishida’s successor Shigeru Ishiba has decided to reintroduce the measure from January. The impacts from subsidies tend to be reflected in inflation data with a lag.
There are also some signs that underlying inflation remains strong beyond the impact of reduced subsidies. Food companies are planning price increases on 3,933 products next year, two and a half times this year’s initial plans, according to a Teikoku Databank report yesterday.
“The consensus-beating pickup in Tokyo’s November inflation is the latest sign consumer price pressures continue to build in line with the Bank of Japan’s outlook. The hotter core reading reflected a rise in utility prices after energy subsidies were rolled back,” said Taro Kimura, an economist for Bloomberg Economics.
The BOJ’s 0.25 percent policy rate is expected to change soon. More than 80 percent of economists surveyed by Bloomberg forecast another hike by January. The Tokyo CPI figures follow a range of recent economic data, including GDP, that show the economy is in a moderate recovery.
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